What is a business level strategy? Coming up with a big goal or mission is easy, but figuring out the concrete steps you need to take to achieve this is more complicated.
This is where business level strategy is vital. We’ll explain why.
Companies are very good at coming up with a big goal or mission. The problems start to happen when they actually try to achieve them.
That’s where the details can come under criticism, cost more than expected, or trigger new surprises nobody was expecting. Usually, these problems arise when you don’t know how to craft a proper business level strategy.
A business level strategy is a key step in laying out the actual phases and steps a business will take to regularly achieve its goals, and without such a strategy a lot of frustration can be created.
Understanding what a business level strategy is and why it is important avoids this angst, and keeps company energy directed on positive, progress-producing action.
What is a Business Level Strategy?
It’s easy to get a business level strategy mixed up with an overall company strategy. That’s because they both deal with similar exercises in planning, and they seem to be chasing after the same results.
In fact, many businesses are regularly implementing a business level strategy every day and wrongly labeling it as the company strategy. This ends up confusing the employees entirely regarding what they are supposed to be doing at any given time.
Specifically, where a company strategy may involve the overall organisational direction in how the company meets its mission, the business level strategy is focused on key elements associated with revenue generation.
- How to attain and meet the needs of customers,
- What goods or services are the ideal choices that meet customer needs,
- How to generate a profit,
- How to grow operating profits once they are being obtained regularly,
- Improving your position against competitors,
- How to leverage the latest technology and market behavior for an advantage.
What is a Business Level Strategy? Examples of Different Strategies
If your company was to develop a business level strategy entirely on cost leadership, your business level strategy would be about maximising unit pricing, and reducing your operating costs as much as possible.
This is a common position for a business where commodity pricing is about low cost volume movement.
On the other hand, differentiation may take considerable investment, but it could pay handsomely in both higher sales as well as long-term customer retention. Both Mercedes and BMW focus their business on differentiation in the premium end of the market.
No, they don’t necessarily move as many units as – for example – some American brands in the US market, but these German car companies have customers who come back to them for new sales decade after decade. This amounts up to significant sales.
Third, a company may decide growing its market isn’t simply doable on a large scale.
Any growth is going to be small and incremental from year to year. So the business level strategy used instead insists on finding ways to reduce existing operating expenses and move products and service faster to clients.
Supermarkets are a key example of this kind of approach, constantly looking for ways to eke out a slightly larger profit margin, maybe through different store displays or reducing a position or two here and there from payroll.
The company success is realized on the thousands of transactions that happen monthly with a slightly higher percentage of profit after changes.
What is a Business Level Strategy? Some Timeless Advice
Businesses are not limited to the tried-and-true. The point of any business level strategy is that it makes sense for the operations at hand, and the business is finding a way to implement the plan.
Otherwise, it’s just another idea on the board for a concept.
Reality dictates at some point someone has to take action on a plan to make it a working strategy, and for business-level planning that means pulling the trigger at some point to make things happen as expected.
And when they don’t, feedback becomes critical for making changes to improve the results even further.
So if you still have them, dust off your marketing class textbooks from business courses and take another look. Business level strategy has a lot in common with traditional marketing lessons on how to run a business better.
Additionally, there are three core types of business-level strategy. Let’s take a look at each of these.
The Three Types of Business Strategy
Understanding these strategies is critical to writing a good strategic business plan.
1. Cost Strategies
Cost leadership is one of the types of business strategy companies use to increase efficiencies and reduce production costs below the industry average or their closest competitor.
What Does Cost Leadership Mean?
Cost leadership means a company that reduces production costs relative to its competitors and thus can charge lower prices for its products than other companies in the industry to gain market share.
The modern business environment is a very complex and sophisticated one with consumers being aware of the choices available to them. One way firms differentiate themselves is through competitive pricing.
Businesses who have the least production costs are able to offer the same level of product quality compared to their competitor for a much lower price.
Consumers are constantly looking to increase their purchasing power. If that cannot be achieved through an increased income, then buying more at a lower price is the next best alternative.
Businesses who seek to be cost leaders tap into this opportunity to offer the average consumers great products at great prices.
Business Strategy Examples
American airline, Southwest Airlines, is known for providing passengers with lower airfare prices in comparison to competitors. They also provide passengers with additional perks such as free snacks which many other airlines have either removed or will charge extra.
This concept is just as prevalent in the manufacturing industry where firms develop new operations to cut costs in an effort to lower prices for their customers.
2. Differentiated Product Strategies
The second basic strategy is product differentiation. Product differentiators often sell a very unusual or innovative product or service.
Product differentiation is one of the types of business strategy that showcases the differences between products. Differentiation looks to make a product more attractive by contrasting its unique qualities with other competing products.
Successful product differentiation creates a competitive advantage for the product’s seller, as customers view these products as being unique or superior.
This can be as simple as packaging the goods in a creative way, or as elaborate as incorporating new functional features. Sometimes differentiation does not involve changing the product at all but creating a new advertising campaign or other sales promotions instead.
Product differentiation determines what sets one product apart from other similar products, and it uses that difference to drive consumer interest.
Product differentiation is often subjective, aiming primarily at altering customer perspective on one item when compared to another, even if the actual differences are minuscule or entirely aesthetic.
Ideally, it demonstrates that the product cannot only do everything your competitors’ items can but that there is an additional benefit, such as additional features, higher overall quality or a lower cost.
Examples of a Product Differentiation Business Strategy
Lower costs can relate to the initial purchase price or any operating and upkeep costs associated with the item.
For example, if Company X produces a coffee maker with the same features as Company Y, Company X may choose to offer a lower selling price for its coffee maker to differentiate it from the competitor.
If the accessories or a disposable part of Company X’s offering cost less than Company Y’s, this can differentiate between the two products.
When functional aspects of the two products are identical, other non-functional features can be highlighted.
This can be as simple as a change in design or styling, such as the product’s colour.
At times, the most effective way to make one product stand out from another is with unique advertising. In that regard, it may be possible to differentiate one brand from another when no discernible differences in the products actually exist.
Effects of Product Differentiation
Aside from bringing in consumer interest, product differentiation business-level strategies may increase brand loyalty and even allow for a higher price point.
If a product is perceived to be better than competitors, whether that belief is based on fact or not, it may encourage consumers to purchase the brand due to its image.
Certain images may even allow for a higher selling price if the item is seen as highly desirable.
A firm that relies on a differentiation strategy competes on the basis of the special features of its products or services. The key to making this strategy work is being able to charge your customers more for those special features than the special features cost you.
Differentiation needs to produce increased revenues in excess of increased costs.
3. Focus Strategies
The focus strategy is really a hybrid of the cost and differentiation strategies.
This business-level strategy states that in some ways, a firm is really good about managing costs, and in other ways, this firm is really good about differentiating products or services.
A firm may choose to take this hybrid approach because it understands a particular audience or niche of customers or category of products.
In other words, the firm can, through this focused approach, serve a particular market better than anybody else. This firm is going to be the best at serving a particular niche.
Firms that are successful in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow geographic market segment, or to a particular buyer group or segment.
They also target market segments that are less vulnerable to substitutes or where a competition is weakest in order to earn an above-average return on investment.
The first two types of business strategy are aimed at achieving their objective industry-wide. Focus strategies, however, are built around serving a particular target or niche extremely well.
The strategy is based on the assertion that the firm can serve its narrow strategic target more effectively or efficiently than more broadly based competitors.
If you want help with your business-level strategy, or any other element of your marketing plans, contact ProfileTree today.